The Significant Decline of Oil Rig Count Suggests Downside Pressure on U.S. Oil Production

According to Baker Hughes, in the week ended January 30, the total number of rigs drilling for oil in the United States came in at 1,223, compared with 1,317 in the prior week and 1,422 a year ago. The 94 oil rigs laid down made up the biggest one-week drop since 1987, the earliest year for which the company has data available.

The two states losing the most rigs were Texas (down 58 and cutting the state’s count to 695 rigs vs 840 at the beginning of January) and Oklahoma (down 10). North Dakota and Wyoming each lost four and Ohio lost three. California and Pennsylvania were the only states to add to rig counts during the week, and each added just one.

Even if the outlook for U.S. oil production also depends on 1) the effciency of drilling (productivity), 2) the rate of decline in production from existing wells or 3) the changes in the amount of time between the start of drilling (called spudding) and the completion of the well, the sharp drop in U.S. oil rig count suggests downside pressure on U.S. oil production especially as the pace of decline exceeds latest EIA forecasts (Jan. 26).

Finally, it is important to note that this pattern also appears in data related to North America (including Gulf of Mexico and Canada). Over the same period, figures show that oil rig count fell 123 to 1,460 (the lowest level since Dec. 12).